Se Financial (SEFL) 10QSB 2004 Q3 Quarterly report (small business)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-QSB

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2004

OR
	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________________________________ to _____________________________________________

Commission file number 0-50684

SE FINANCIAL CORP.

(Exact name of registrant as specified in its charter)

Pennsylvania	57-1199010
(State or other jurisdiction of incorporation or organization)	(I.R.S. employer identification no.)
1901-03 Passyunk Avenue, Philadelphia, Pennsylvania	19148
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code   215-468-1700

N/A

Former name, former address and former fiscal year, if changed since last report.

      Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes     X    No _____

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date: September 10, 2004

Class	Outstanding
$.10 par value common stock	2,578,875 shares

SE FINANCIAL CORP.

FORM 1O-QSB

FOR THE QUARTER ENDED JULY 31, 2004

INDEX

			Page Number
PART I – CONSOLIDATED FINANCIAL INFORMATION
	Item 1.	Consolidated Financial Statements (Unaudited)	1
	Item 2.	Management’s Discussion and Analysis of Financial
		Condition and Results of Operations	9
	Item 3.	Controls and Procedures	13
PART II- OTHER INFORMATION
	Item 1	Legal Proceedings	14
	Item 2.	Changes in Securities and Small Business Issuer Purchases of Equity Securities	14
	Item 3.	Defaults Upon Senior Securities	14
	Item 4.	Submission of Matters to a Vote of Security Holders	14
	Item 5.	Other Information	14
	Item 6.	Exhibits and Reports on Form 8-K	14
SIGNATURES
EXHIBITS
	31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32.	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
	99.1	Independent Accountant’s Report

I

SE FINANCIAL CORP.
CONSOLIDATED BALANCE SHEET
(Unaudited)

			July 31, 2004			October 31, 2003
ASSETS
	Cash and due from banks	$	902,724		$	675,001
	Interest-bearing deposits with other institutions		1,422,403			5,628,890
	Cash and cash equivalents		2,325,127			6,303,891
	Certificates of deposit in other financial institutions		187,201			183,483
	Investment securities available for sale		52,730,126			27,337,238
	Loans receivable (net of allowance for loan losses of $267,830 and $262,561)		57,753,221			50,729,660
	Accrued interest receivable		581,258			482,538
	Federal Home Loan Bank Stock		1,138,400			735,000
	Real estate owned		37,000			38,881
	Premises and equipment, net		1,094,201			1,148,993
	Bank owned life insurance		1,846,610			—
	Other assets		550,495			407,622
	TOTAL ASSETS	$	118,243,639		$	87,367,306
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
	Deposits	$	69,523,547		$	72,272,834
	Federal Home Loan Bank borrowings		16,591,864			6,637,204
	Advances by borrowers for taxes and insurance		473,176			477,386
	Accrued interest payable		46,184			49,703
	Other liabilities		654,860			258,521
	TOTAL LIABILITIES		87,289,631			79,695,648
Stockholders’ equity
	Preferred stock – no par value; 2,000,000 shares authorized; none issued		—			—
	Common stock – $0.10 par value; 8,000,000 shares authorized; 2,578,875 issued		257,888			—
	Additional paid-in-capital		24,840,524			—
	Unallocated shares held by Employee Stock Ownership Plan (“ESOP”)		(2,035,438	)		—
	Retained earnings		8,195,967			7,755,558
	Accumulated other comprehensive loss		(304,933	)		(83,900	)
	TOTAL STOCKHOLDERS’ EQUITY		30,954,008			7,671,658
	TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	118,243,639		$	87,367,306

See accompanying notes to the unaudited consolidated financial statements.

1

S E FINANCIAL CORP.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)

	Three Months Ended July 31,					Nine Months Ended July 31,
	2004		2003			2004		2003
INTEREST AND DIVIDEND INCOME
Loans receivable	$	981,050	$	949,047		$	2,800,895	$	3,007,802
Investment securities
Taxable		359,515		260,900			840,866		812,604
Exempt from federal income tax		33,907		22,467			93,142		51,184
Interest-bearing deposits with other institutions		37,228		11,817			63,157		42,523
Other dividend income		3,415		3,548			8,186		14,229
Total interest and dividend income		1,415,115		1,247,779			3,806,246		3,928,342
INTEREST EXPENSE
Deposits		434,192		534,927			1,351,094		1,717,107
Federal Home Loan Bank borrowings		121,819		55,681			228,951		167,702
Total interest expense		556,011		590,608			1,580,045		1,884,809
NET INTEREST INCOME		859,104		657,171			2,226,201		2,043,533
Provision for loan losses		9,000		9,000			27,000		27,000
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES		850,104		648,171			2,199,201		2,016,533
NONINTEREST INCOME
Service fees on deposit accounts		63,864		80,545			195,652		244,098
Earnings on bank owned life insurance		20,079		-			48,974		-
Other		8,795		17,290			26,043		53,044
Total noninterest income		92,738		97,835			270,669		297,142
NONINTEREST EXPENSE
Compensation and employee benefits		343,981		279,133			957,776		852,805
Occupancy and equipment		62,808		62,524			177,137		203,891
Real estate operation, net		2,219		(1,313	)		2,394		11,389
Federal deposit insurance premiums		10,114		9,859			30,011		35,158
Data processing expense		72,826		72,479			216,088		219,398
Professional fees		47,030		32,717			116,981		72,536
Other		105,869		83,713			286,756		259,859
Total noninterest expense		644,847		539,112			1,787,143		1,655,036
INCOME BEFORE TAXES		297,995		206,894			682,727		658,639
INCOME TAXES		106,256		77,719			242,318		250,455
NET INCOME	$	191,739	$	129,175		$	440,409	$	408,184
PER SHARE DATA:
Earnings per share 1	$	0.08		NA		$	0.08		NA
Weighted average number of shares outstanding		2,374,450		NA			2,374,450		NA

1. Reflects earnings since becoming a public company on May 5, 2004.

See accompanying notes to the unaudited consolidated financial statements.

2

S E FINANCIAL CORP.
CONSOLIDATED STATEMENT OFCHANGES IN STOCKHOLDERS’ EQUITY

				Common Stock at Par		Additional Paid-in- Capital			Unallocated shares held by ESOP			Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity			Comprehensive Income
												(Unaudited)
Balance, October 31, 2002				$	-	$	-		$	-		$	7,198,956	$	187,158		$	7,386,114
Net income													408,183					408,183		$	408,183
Other comprehensive income:
Unrealized gain on available for sale securities net of taxes of	$	54,710													111,286			111,286			111,286
Comprehensive income																				$	519,469
Balance, July 31, 2003				$	-	$	-		$	-		$	7,607,139	$	298,444		$	7,905,583
Balance, October 31, 2003				$	-	$	-		$	-		$	7,755,558	$	(83,900	)	$	7,671,658
Issuance of Common Stock					257,888		24,841,658			(2,063,100	)		-		-			23,036,446
ESOP shares released							(1,134	)		27,662								26,528
Net income													440,409					440,409		$	440,409
Other comprehensive loss:
Unrealized loss on available for sale securities net of tax benefit of	$	(133,641	)												(221,033	)		(221,033	)		(221,033	)
Comprehensive income																				$	219,376
Balance, July 31, 2004				$	257,888	$	24,840,524		$	(2,035,438	)	$	8,195,967	$	(304,933	)	$	30,954,008

See accompanying notes to the unaudited consolidated financial statements.

3

SE FINANCIAL CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)

	For the Nine Months Ended July 31,
		2004			2003
OPERATING ACTIVITIES
Net income	$	440,409		$	408,184
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		27,000			27,000
Depreciation, amortization, and accretion		115,177			113,007
Earnings on bank-owned life insurance		(48,974	)		-
Increase in accrued interest receivable		(98,720	)		(24,513	)
Decrease in accrued interest payable		(3,519	)		(21,609	)
Increase (decrease) in principal and interest on loans sold payable		86,083			(29,397	)
Other, net		300,722			(1,016	)
Net cash provided by operating activities		818,178			471,656
INVESTING ACTIVITIES
Investment securities available for sale:
Proceeds from principal repayments and maturities		8,524,421			16,166,593
Purchases		(34,351,781	)		(21,331,111	)
Decrease (increase) in loans receivable, net		(7,017,340	)		2,165,671
Proceeds from sales of real estate acquired through foreclosure		57,122			101,573
Purchase of Federal Home Loan Bank stock		(403,400	)		(92,900	)
Purchase of bank-owned life insurance		(1,797,636	)		-
Purchase of premises and equipment		(45,937	)		(141,774	)
Net cash used for investing activities		(35,034,551	)		(3,131,948	)
FINANCING ACTIVITIES
Increase (decrease) in deposits, net		(2,749,287	)		620,722
Proceeds from Federal Home Loan Bank borrowings		10,000,000			-
Repayment of Federal Home Loan Bank borrowings		(45,340	)		(42,506	)
Net proceeds from issuance of common stock		23,036,446			-
Decrease in advances by borrowers for taxes and insurance, net		(4,210	)		(138,379	)
Net cash provided by financing activities		30,237,609			439,837
Decrease in cash and cash equivalents		(3,978,764	)		(2,220,455	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		6,303,891			7,300,707
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	2,325,127		$	5,080,252
SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid:
Interest	$	1,583,564		$	1,906,418
Income taxes		147,000			187,717
Noncash transactions:
Transfers from loans to real estate acquired through foreclosure		54,939			240,560

See accompanying notes to the unaudited consolidated financial statements.

4

SE FINANCIAL CORP.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – BASIS OF PRESENTATION

     The consolidated financial statements include the accounts of SE Financial Corp. (the “Company”) and St. Edmond’s Federal Savings Bank (the “Bank”). The Bank includes its wholly-owned subsidiary, SE Investment Services Corp. (“Services Corp.”). All intercompany transactions have been eliminated in consolidation.

     The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the instructions for Form 10-QSB. In management’s opinion, the financial statements include all adjustments, consisting of normal recurring adjustments, that the Company considers necessary to fairly state the Company’s financial position and the results of operations and cash flows. The balance sheet at October 31, 2003, has been derived from the audited financial statements at that date but does not include all of the necessary informational disclosures and footnotes as required by accounting principles generally accepted in the United States of America. The results of the Company’s operations for any interim period are not necessarily indicative of the results of the Company’s operations for any other interim period or for a full fiscal year.

NOTE 2 – COMPREHENSIVE INCOME

     The components of comprehensive income consist exclusively of unrealized gains and losses on available for sale securities. For the nine months ended July 31, 2004 and 2003, this activity is shown under the heading Comprehensive Income as presented in the Consolidated Statement of Changes in Stockholders’ Equity (Unaudited). For the three months ended July 31, 2004 and 2003, comprehensive income (loss) totaled ($44,389) and $217,994, respectively.

NOTE 3 – COMPLETION OF INITIAL PUBLIC OFFERING

     On January 15, 2004, the Board of Directors of the Bank, subject to regulatory approval, ratified a Plan of Conversion (the “Plan”) to convert from a federally chartered mutual savings institution to a federally chartered stock savings institution. Upon completion of the conversion, the Bank became a wholly-owned subsidiary of a concurrently formed holding company, SE Financial Corp. Pursuant to the plan, nontransferable subscription rights to purchase common stock of the holding company were offered first to eligible account holders, the tax-qualified employee stock benefit plans, and other members.

     On May 5, 2004, the Company completed an initial public offering and sold 2,578,875 shares of common stock at $10 per share and received proceeds of $23,036,446 net of conversion expenses of approximately $689,204 and a note receivable from the ESOP of $2,063,100. The Company used 50% of the net proceeds from the offering to purchase all of the Bank’s stock.

     The Company had received stock subscriptions totaling $34,437,740 at April 30, 2004 pending completion of the Company’s initial public offering. At the time of the closing, gross proceeds of $23,725,650 became capital of the Company with the remainder returned on oversubsciptions.

NOTE 4 – INVESTMENTS

The amortized cost and the fair value of available-for-sale investment securities were as follows:

5

			July 31, 2004
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Market Value
Mortgage-backed securities:
	Fannie Mae	$	24,831,529	$	56,612	$	(238,560	)	$	24,649,581
	Freddie Mac		2,831,340		11,172		(7,956	)		2,834,556
	GNMA		3,300,504		60,937		(667	)		3,360,774
	Total mortage-backed securities		30,963,373		128,721		(247,183	)		30,844,911
U.S. Government agency securities			17,958,561		18,659		(360,156	)		17,617,064
Municipal securities			4,113,789		19,989		(48,864	)		4,084,914
	Total debt securities		53,035,723		167,369		(656,203	)		52,546,889
Mutual funds			183,707		—		(470	)		183,237
	Total	$	53,219,430	$	167,369	$	(656,673	)	$	52,730,126
			October 31, 2003
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Market Value
Mortgage-backed securities:
	Fannie Mae	$	7,964,812	$	73,561	$	(29,236	)	$	8,009,137
	Freddie Mac		1,647,127		15,285		(538	)		1,661,874
	GNMA		1,229,528		32,871		—			1,262,399
	Total mortage-backed securities		10,841,467		121,717		(29,774	)		10,933,410
U.S. Government agency securities			13,721,409		40,534		(279,773	)		13,482,170
Municipal securities			2,728,283		32,596		(20,369	)		2,740,510
	Total debt securities		27,291,159		194,847		(329,916	)		27,156,090
Mutual funds			180,706		442		—			181,148
	Total	$	27,471,865	$	195,289	$	(329,916	)	$	27,337,238

The amortized cost and estimated market value of debt securities at July 31, 2004, by contractual maturity, are shown below. Mortgage-backed securities provide for periodic, generally monthly, payments of principal and interest and have contractual maturities ranging from one to thirty years. Expected maturities will differ from contractual maturities because borrowers may have the right to call or repay obligations with or without call or prepayment penalties.

		Amortized Cost		Estimated Market Value
Due after one year through five years	$	8,184,004	$	8,017,785
Due after five years through ten years		14,582,413		14,350,433
Due after ten years		30,269,306		30,178,771
	$	53,035,723	$	2,546,989

6

NOTE 5 – BORROWINGS

The following table sets forth information concerning other borrowings with the FHLB:

			Weighted average interest rate		Stated interest rate range
	Maturity range									July 31, 2004		October 31, 2003
Description	from	to			from		to
Convertible	2/18/2010	2/18/2010	5.91	%	5.91	%	5.91	%	$	1,000,000	$	1,000,000
Fixed rate	11/1/2004	8/20/2008	3.11		1.29		6.24			11,500,000		1,500,000
Line	10/31/2004	10/31/2004	1.57		1.57		1.57			4,000,000		4,000,000
Fixed rate amortizing	11/3/2005	11/3/2005	6.47		6.47		6.47			91,864		137,204
									$	16,591,864	$	6,637,204

Maturities of other borrowings at July 31, 2004, are summarized as follows:

		2004
Year Ending October 31,		Amount	Weighted- Average Rate
2004	$	4,015,606	1.59%
2005		3,065,009	1.69
2006		3,011,249	2.64
2007		3,000,000	3.30
2008		2,500,000	5.29
2010		1,000,000	5.91
	$	16,591,864	2.93%

The terms of the convertible borrowing allows the FHLB to convert the interest rate to an adjustable rate based on the three-month London Interbank Offered Rate (“LIBOR”) at a predetermined anniversary year of the borrowing’s origination, ranging from one to seven years. Rates may be reset at the FHLB’s discretion on a quarterly basis based on three-month LIBOR. At each rate change the Bank may exercise a put option and satisfy the obligation without penalty. The fixed rate amortizing borrowing requires monthly payments of principal and interest of $5,670 through November 2005.

NOTE 6 – EARNINGS PER SHARE

The Company currently maintains a simple capital structure; thus, there are no dilutive effects on earnings per share. Earnings per share are calculated by dividing net income by the weighted-average number of shares outstanding for the period since inception, May 5, 2004. Net income used in the earnings per share calculation was $179,960.

7

NOTE 7 – EMPLOYEE STOCK OWNERSHIP PLAN

The Company has an ESOP for the benefit of employees who meet the eligibility requirements. The ESOP trust purchased 206,310 shares of common stock in the initial public offering with proceeds from a loan with the Company. The Bank makes cash contributions to the ESOP on an annual basis sufficient to enable the ESOP to make the required loan payments to the Company. The loan bears an interest rate of 4.00% with principal and interest payable quarterly in equal installments over fourteen years. The loan is secured by the shares of the stock purchased.

As the debt is repaid, shares are released from the collateral and allocated to qualified employees based on the proportion of debt service paid during the year. Accordingly, the shares pledged as collateral are reported as unallocated ESOP shares in the Consolidated Balance Sheet. As shares are released from collateral, the Company reports compensation expense equal to the current market price of the shares, and the shares become outstanding for earnings-per-share computations. The Company’s contribution expense for the ESOP was $27,662 for the nine months ended July 31, 2004.

The following table presents the components of the ESOP shares:

		2004
Shares released for allocation		2,766
Unreleased shares		203,544
Total ESOP shares		206,310
Fair value of unreleased shares	$	1,990,892

8

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

     This document contains forward-looking statements, including statements about anticipated operating and financial performance, such as loan originations, operating efficiencies, loan sales, charge-offs and loan loss provisions, growth opportunities, interest rates, and deposit growth. Words such as “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “project,” “plan,” and similar expressions are intended to identify these forward-looking statements.

     Forward-looking statements are necessarily subject to many risks and uncertainties. A number of things could cause actual results to differ materially from those indicated by the forward-looking statements. Many of the risks and uncertainties are beyond our control. Forward-looking statements are based on our beliefs, plans, objectives, goals, assumptions, expectations, estimates, and intentions as of the date the statements are made. There is no assurance that these beliefs, plans, objectives, goals, assumptions, expectations, estimates, and intentions will be realized.

Comparison of the Results of Operations for the Nine Months Ended July 31, 2004 and July 31, 2003

     The Company recorded net income of $440.4 thousand for the nine months ended July 31, 2004, which represents an increase of $32.2 thousand, or 7.9%, over the same period in 2003. The increase in net income is primarily due to an increase in net interest income partially offset by a decrease in non-interest income and an increase in non-interest expense.

     Net Interest Income. Net interest income for the nine months ended July 31, 2004 increased to $2.2 million from $2.0 million for the same period in 2003 as a result of a decrease in total interest expense. Interest income for the nine months ended July 31, 2004 totaled $3.8 million as compared to $3.9 million for the nine months ended July 31, 2003. This decrease of $122.1 thousand was attributed primarily to a decrease in the average yield on interest earning assets to 5.37% for the nine months ended July 31, 2004 from 6.38% for the nine months ended July 31, 2003. This decrease was offset by an increase in the average balance of interest earning assets of $12.7 million. The average balance of net loans receivable, investment securities and other interest-earning assets increased by $3.0 million, $4.5 million and $5.3 million, respectively, while the average yields decreased by 1.01%, .22% and .57%, respectively.

     Interest expense decreased to $1.6 million, representing a 16.2% decrease, for the nine months ended July 31, 2004 from $1.9 million for the nine months ended July 31, 2003 and was primarily attributable to the current interest rate environment that resulted in a lowering of the average cost of funds to 2.70% for the nine months ended July 31, 2004 as compared to 3.35% for the same period in 2003. The average balance of interest-bearing liabilities increased by $2.9 million. The average balance of deposits decreased by $454 thousand and the average balance of FHLB advances increased by $3.3 million while the average cost of deposits decreased by .69% and the average cost of advances decreased by .32%.

     Loan Loss Provision. The provision for loan losses was $27 thousand for the nine months ended July 31, 2004 which is the same amount for the nine months ended July 31, 2003. The loan loss provision is based upon management’s assessment of a variety of factors, including types and amounts of nonperforming loans, historical loss experience, collectibility of collateral values and guaranties, pending legal action for collection of loans and related guaranties, and current economic conditions. The allowance represents management’s best estimate of known and inherent losses in the loan portfolio at the balance sheet date that are both probable and reasonable to estimate. However, actual loan losses could exceed the amounts that have been charged to operations.

9

     Non-interest Income. Total non-interest income decreased to $270.7 thousand for the nine months ended July 31, 2004 compared to $297.1 thousand for the nine months ended July 31, 2003. The decrease is principally due to a reduction in service charges and fees on deposit account activity in both the transactional fees being charged and the volume of related transactions and a reduction in miscellaneous loan fees. This decrease was offset by an increase in other non-interest income generated by the earnings on bank-owned life insurance.

     Non-interest Expense. Non-interest expense increased slightly to $1.8 million for the nine months ended July 31, 2004 from $1.7 million for the nine months ended July 31, 2003. Compensation and employee benefit expense increased by approximately $105.0 thousand. This increase was due to a normal increase in salaries, an increase in medical insurance costs, implementation of an incentive retirement plan and implementation of an employee stock ownership plan. Occupancy and equipment expense decreased by approximately $26.8 thousand. This decrease was attributable to a reduction in rental expense due to the closing of a branch office. Professional fees increased by approximately $53.9 thousand. This increase was mainly due to an increase in accounting, auditing and legal fees that resulted from becoming a public reporting company.

     Additionally, the Bank currently plans to add seven full time employees to its staff over the next several years, including up to three new lending/business development officers, an assistant branch manager, and a support staff employee in each of the accounting, lending and customer service departments.

     Income Taxes. Income tax expense declined to $242.3 thousand for the nine months ended July 31, 2004 from $250.5 thousand for the same period in 2003. This was due to an increase in tax-exempt investment securities as well as the purchase of bank-owned life insurance.

Comparison of the Results of Operations for the Three Months Ended July 31, 2004 and July 31, 2003

     The Company recorded net income of $191.7 thousand for the three months ended July 31, 2004, which represents an increase of $62.6 thousand over the same period in 2003. The increase in net income is primarily due to an increase in net interest income, partially offset by a decrease in non-interest income and an increase in non-interest expense and an increase in taxes.

     Net Interest Income. Net interest income for the three months ended July 31, 2004 increased to $859.1 thousand from $657.2 thousand for the same period in 2003 as a result of a decrease in total interest expense. Interest income for the three months ended July 31, 2004 totaled $1.4 million as compared to $1.2 million for the three months ended July 31, 2003. This increase of $167.3 thousand was attributed primarily to an increase in the average balance of interest earning assets as a result of the investment of the net proceeds from the Company’s stock offering offset by a decrease in the average yield on interest earning assets.

     Interest expense decreased to $556.0 thousand for the three months ended July 31, 2004 from $590.6 thousand for the three months ended July 31, 2003 and was primarily attributable to the current interest rate environment that resulted in a lowering of the average cost of funds to 2.64% for the three months ended July 31, 2004 as compared to 3.13% for the same period in 2003.

10

     Loan Loss Provision. The provision for loan losses was $9,000 for the three months ended July 31, 2004 which is the same amount as for the three months ended July 31, 2003. The loan loss provision is based upon management’s assessment of a variety of factors, including types and amounts of nonperforming loans, historical loss experience, collectibility of collateral values and guaranties, pending legal action for collection of loans and related guaranties, and current economic conditions. The allowance represents management’s best estimate of known and inherent losses in the loan portfolio at the balance sheet date that are both probable and reasonable to estimate. However, actual loan losses could exceed the amounts that have been charged to operations.

     Non-interest Income. Total non-interest income decreased to $92.7 thousand for the three months ended July 31, 2004 compared to $97.8 thousand for the three months ended July 31, 2003. The decrease is principally due to a reduction in service fees on deposit accounts, a reduction in miscellaneous loan fee income offset by the income generated by the purchase of a bank-owned life insurance policy.

     Non-interest Expense. Non-interest expense increased to $644.8 thousand for the three months ended July 31, 2004 from $539.1 thousand for the three months ended July 31, 2003. Compensation and employee benefit expense increased by approximately $64.8 thousand. This increase was due to a normal increase in salaries, an increase in medical insurance costs, the implementation of an incentive retirement plan and the implementation of an employee stock ownership plan. Miscellaneous operating expenses increased by approximately $40.6 thousand. This increase was due to an increase in loan origination expenses and an increase in professional fees that resulted from becoming a public reporting company.

     Income Taxes. Income tax expense increased to $106.3 thousand for the three months ended July 31, 2004 from $77.7 thousand for the same period in 2003. This was due to an increase in income before taxes.

Comparison of Financial Condition at July 31, 2004 and October 31, 2003

     Assets and Liabilities. The Company’s total assets increased by $30.9 million to $118.2 million at July 31, 2004 from $87.4 million at October 31, 2003.

     Cash and cash equivalents decreased to $2.3 million at July 31, 2004 from $6.3 million at October 31, 2003. Cash and cash equivalents decreased during the period as funds were utilized to purchase securities and fund loan originations.

     Investment securities available for sale increased by $25.4 million to $52.7 million at July 31, 2004 from $27.3 million at October 31, 2003. The increase is due to investment purchases primarily in U. S. government mortgage-backed securities which were partially offset by investment calls and maturities and principal repayment on mortgage-backed securities. The Company funded this growth through an increase in borrowing from the Federal Home Loan Bank of Pittsburgh, along with the utilization of excess cash and cash equivalents and the reinvestment of called and matured securities during the nine months ended July 31, 2004.

     Net loans receivable increased $7.0 million, or 13.8%, to $57.8 million at July 31, 2004 from $50.7 million at October 31, 2003, as the Company continued to experience strong loan production and repayments were more moderate. The increase in net loans receivable was the result of increases in single family 1-4 residential mortgages which includes owner and non-owner occupied properties, home equity loans and construction financing.

     The allowance for loan losses increased to $267.8 thousand at July 31, 2004 from $262.5 thousand at October 31, 2003 and represented 0.46% of the gross loan portfolio at July 31, 2004. The Company had nonaccrual loans of $92.5 thousand and $369.8 thousand at July 31, 2004 and October 31, 2003, respectively. Management does not believe the nonaccrual loans or any amounts classified as nonperforming will have a significant effect on operations or liquidity in 2004. Furthermore, management is not aware of any trends or uncertainties related to any loans classified as doubtful or substandard that might have a material effect on earnings, liquidity or capital resources.

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     Total deposits decreased to $69.5 million at July 31, 2004 from $72.3 million at October 31, 2003. This was primarily a result of a decrease in certificates of deposit offset by an increase in core accounts. Although time deposits declined, they continued to account for 68.22% of the total deposit portfolio and remain a dominant source of funds.

     Federal Home Loan Bank borrowings increased to $16.6 million at July 31, 2004 from $6.6 million at October 31, 2003. The Company borrowed funds from the FHLB to fund the purchase of U. S. government mortgage-backed securities.

     Stockholders’ Equity. Total stockholders’ equity increased $23.3 million to $31.0 million at July 31, 2004 from October 31, 2003. This increase was attributable to net proceeds of $23.0 million in connection with the Company’s initial public offering, and net income of $440.4 thousand, offset by accumulated other comprehensive loss of $221.0 thousand. Accumulated other comprehensive income decreased as a result of changes in the net unrealized loss on investment securities available for sale. Because of interest rate volatility, accumulated other comprehensive income could materially fluctuate for each interim period and year end period depending on economic and interest rate conditions.

Liquidity and Capital Resources

     Liquidity. Liquidity management for the Company is measured and monitored on both a short- and long-term basis, allowing management to better understand and react to emerging balance sheet trends. After assessing actual and projected cash flow needs, management seeks to obtain funding at the most economical cost to the Company. Both short- and long-term liquidity needs are addressed by maturities and sales of investments securities, and loan repayments and maturities. The use of these resources, in conjunction with access to credit, provides the core ingredients for satisfying depositor, borrower, and creditor needs.

     The Company’s liquid assets consist of cash and cash equivalents, certificates of deposit in other financial institutions and investment securities classified as available for sale. The level of these assets is dependent on the Company’s operating, investing, and financing activities during any given period. At July 31, 2004, cash and cash equivalents totaled approximately $2.3 million, or 2.0% of total assets while investment securities classified as available for sale and certificates of deposit in other financial institutions totaled approximately $52.7 million, or 44.6% of total assets. Management believes that the liquidity needs of the Company are satisfied by the current balance of cash and cash equivalents, readily available access to traditional funding sources, FHLB advances, and the portion of the investment and loan portfolios that mature within one year.

     Operating activities provided net cash of approximately $933.6 thousand and $483.5 thousand for the nine months ended July 31, 2004 and 2003, respectively.

     Investing activities consist primarily of loan originations and repayments and investment purchases and maturities. For the nine months ended July 31, 2004, these cash usages primarily consisted of investment purchases of $34.4 million, an increase in net loan receivable of $7.0 million, the purchase of bank-owned life insurance in the amount of $1.8 million and the purchase of Federal Home Loan Bank stock in the amount of $403.4 thousand. Partially offsetting the usage of investment activities is $8.5 million of proceeds from investment security maturities and repayments. For the same period ended 2003, cash usages primarily consisted of investment purchases of $21.3 million and the purchase of Federal Home Loan Bank stock of $92.9 thousand. Partially offsetting the usage of investment activities were net repayment of loans in the amount of $2.2 million and proceeds from repayments and maturities of investment securities in the amount of $16.2 million. For both periods, the lower interest rate environment has resulted in numerous securities being called and one-to-four family loans being refinanced.

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     Financing activities consist of the solicitation and repayment of customer deposits, borrowings and repayments, and advances by borrowers for taxes and insurance and the issuance of common stock. For the nine months ended July 31, 2004, net cash provided by financing activities totaled $30.2 million and was principally from the net proceeds derived from common stock sold in the Company’s initial public offering of $23.0 million and an increase in Federal Home Loan Bank advances in the amount of $10.0 million offset by a decrease in deposits of $2.7 million. For the same period in 2003, net cash provided by financing activities totaled $439.8 thousand and was primarily from an increase in deposits.

     Liquidity may be adversely affected by unexpected deposit outflows, interest rates paid by competitors, and similar matters. Management monitors projected liquidity needs and determines the level desirable, based in part on the Company’s commitment to make loans, as well as management’s assessment of the Company’s ability to generate funds. The Bank anticipates that it will have sufficient liquidity to satisfy expected short-term and long-term funding needs.

     Capital. The Company’s primary source of capital has been retained earnings. Historically, the Bank has generated net retained income to support normal growth and expansion. The proceeds of the stock offering in connection with the Company’s recently completed mutual-to-stock conversion are part of management’s new capital planning policy to ensure compliance with regulations and to permit future expansion. The infusion of this new capital significantly increased the Company’s capital resources by increasing equity.

     The Bank is subject to federal regulations imposing minimum capital requirements. Management monitors the Bank’s total risk-based, Tier I risk-based, and Tier I leverage capital ratios to assess compliance with regulatory guidelines. At July 31, 2004, the Bank exceeded the minimum capital ratio requirements.

ITEM 3. CONTROLS AND PROCEDURES

(a)      Evaluation of disclosure controls and procedures. Based on their evaluation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)), the Company’s principal executive officer and principal financial officer have concluded that as of the end of the period covered by this Quarterly Report on Form 10-QSB such disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

(b)      Changes in internal control over financial reporting. During the quarter under report, the Company made a change in the firm that performs the internal audit function for the Bank. The Company still believes there was no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II

ITEM 1.	LEGAL PROCEEDINGS
	Not applicable.

ITEM 2. CHANGES IN SECURITIES AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES

(d) Use of Proceeds

(1) The effective date of the Form SB-2 was March 11, 2004 and the Commission file number was 333-112153.

(2) The Offering commenced on May 5, 2004.

(3) Not Applicable

(4) (i) The offering has terminated with the sale of all securities registered;

(ii) The name of the managing underwriter: Sandler O’Neill & Partners, L.P.

(iii) Common stock, par value $.10 per share was registered;

(iv) Amount registered – 2,578,875 shares;

Aggregate price of offering amount registered – $25,788,750;

(v) Expenses of the offering which were direct or indirect payments to others;

Expense paid to and for underwriters – $317,888;

Other expenses – $371,316;

Total expenses – $689,204;

(vi) Net offering proceeds – $25,099,546;

(vii) Direct or indirect payments to affiliates:

Loan to ESOP of subsidiary bank – $2,063,100;

Purchase outstanding stock of subsidiary bank – $12,549,773;

Non interest checking account with subsidiary bank – $10,486,672

(viii) Not applicable

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     Not applicable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     None.

ITEM 5. OTHER INFORMATION

     None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

3(i) Articles of Incorporation of SE Financial Corp. *

3(ii) Bylaws of SE Financial Corp. *

4 Specimen Stock Certificate of SE Financial Corp. *

10.1 Executive Life Insurance Plan **

10.2 Directors’ Incentive Retirement Plan **

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10.3 Executive Officers’ Incentive Retirement Plan **

31.1 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Frank S. DePaolo

31.2 Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Joseph Sidebotham

32 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

99.1 Independent Accountant’s Report

(b) Reports on Form 8-K

A current report on Form 8-K, dated May 5, 2004, was filed by the Company on May 5, 2004 with respect to the Company’s press release announcing the receipt of regulatory and member approval on its plan to convert to stock ownership, under Item 5.

A current report on Form 8-K, dated June 1, 2004, was filed by the Company on June 1, 2004 with respect to the Company’s press release announcing earnings results for the period ended April 30, 2004, under Item 7.

A current report on Form 8-K, dated August 18, 2004, was filed by the Company on August 18, 2004 with respect to the Company’s press release announcing a declaration of a cash dividend, under Item 5.

A current report on Form 8-K, dated August 25, 2004, was filed by the Company on August 25, 2004 with respect to the Company’s press release announcing earnings results for the period ended July 31, 2004, under Item 2.02.

* Incorporated by reference to the identically numbered exhibit to the Company’s registration statement on Form SB-2 (File No. 333-112153) filed with the SEC on January 23, 2004.

** Incorporated by reference to the identically numbered exhibit to the Company’s registration statement on Form SB-2 (File No. 333-112153) filed with the SEC on March 1, 2004.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

	SE FINANCIAL CORP.
Date: September 10, 2004	/s/ Frank S. DePaolo
	Frank S. DePaolo
	President and CEO
	(Principal Executive Officer)
Date: September 10, 2004	/s/ Joseph Sidebotham
	Joseph Sidebotham
	Executive Vice President, Chief Financial
	Officer and Controller
	(Principal Financial & Accounting Officer)